02 November 2011

A New Study on Insured Losses and Climate Change

A month before the start of the world climate summit, Munich Re is drawing attention to the strong probability that there is a connection between the large number of weather extremes and climate change. The reinsurer has built up the world’s most comprehensive natural catastrophe database, which shows a marked increase in the number of weather-related events. For instance, globally, loss-related floods have more than tripled since 1980, and windstorm natural catastrophes more than doubled, with particularly heavy losses from Atlantic hurricanes. This rise cannot be explained without global warming.

They do find a positive trend in insured losses in the US since 1973, and for specific phenomena such as hurricanes and floods, for which longer-term data sets show no upwards trends for either phenomena (and which Barthel and Neumayer acknowledge). Interestingly, they also claim to find a positive trend in insured losses from convective events in the US (including tornadoes), which is in sharp disagreement with our recent work on normalized tornado losses, which finds a dramatic reduction in both economic losses and strong tornadoes since 1950 (in fact, even the non-normalized economic losses show a downward trend). They also find upward trends in storm losses in the western part of Germany. The acknowledge that both regional trends might be associated with simple variability or how they adjust for insurance penetration -- it will be interesting to reconcile our tornado work with theirs (ours focuses on total damage).

Based on their analysis they conclude (emphasis added):

Climate change neither is nor should be the main concern for the insurance industry. The accumulation of wealth in disaster-prone areas is and will always remain by far the most important driver of future economic disaster damage. . .

What the results tell us is that, based on the very limited time-series data we have for most countries, there is no evidence so far for a statistically significant upward trend in normalized insured loss from extreme events outside the US and West Germany. . .

[W]e warn against taking the findings for the US and Germany as conclusive evidence that climate change has already caused more frequent and/or more intensive natural disasters affecting this country. To start with, one needs to be careful in attributing such a trend to anthropogenic climate change, i.e. climate change caused by man-made greenhouse gas emissions. Our findings reported in this article could be down to natural climate variability that has nothing to do with anthropogenic climate change. Such natural climate variability may well explain our finding of a significant upward trend in insured loss from hurricanes in the US, for example. . .

They offer several other methodological cautions about the interpretation of the few trends that they found, and quite appropriately.

But the most interesting part of their study is not their conclusions, which are both a valuable contribution to this area of research and perfectly consistent with the growing literature on this topic, but rather, what is found in the acknowledgments (double emphasis added):

The authors acknowledge support from the Munich Re Programme “Evaluating the Economics of Climate Risks & Opportunities in the Insurance Sector” at LSE.

So the next time that Munich Re wants to attribute the growing toll of disaster losses to climate change, or you see someone citing Munich Re saying as much, they might be reminded of the Munich Re funded (and peer-reviewed) research which tells quite a different story than that found in press releases.